CFA Institute Mock Exam 2 - Section 1
Questions And Answers With Verified
Solutions 100% Correct!!!
The relationship between an investment professional and her clients is
predominately based on trust, most likely because the investment professional:
sells or gives advice related to tangible products and services.
has specialized knowledge, leading her to have more power.
has access to information on which to base investment decisions. - ANSWER✔✔B
is correct. Investment professionals have access to specialized knowledge and
often have better access to information that gives them an advantage and more
power than the client. Clients expect their advisers to use this knowledge and
information to their benefit, not for the investment professional to take advantage
of them.
A is incorrect. Investment professionals sell or give advice on intangible products,
not tangible products, so trust is harder for the client to give.
C is incorrect. Investment professionals sometimes have access to more
information on which to make investment decisions, however, it is not unlimited.
In the CFA Institute Standards of Professional Conduct, Standard III-Duties to
Clients most likely includes which of the following subsections?
Performance Presentation
Knowledge of the Law
Independence and Objectivity - ANSWER✔✔A is correct. Performance
Presentation is a sub-section of Standard III-Duties to Clients. The other sub-
,sections include: Loyalty, Prudence and Care, Fair Dealing, Suitability, and
Preservation of Confidentiality.
B is incorrect. Knowledge of the Law is a sub-section of Standard I-
Professionalism.
C is incorrect. Independence and Objectivity is a sub-section of Standard I-
Professionalism.
Reliable Data Corp offered to pay all the expenses of Lindsey Robinson, CFA, an
equity analyst who covers the company, to attend the company's upcoming annual
shareholder meeting. Robinson declined their offer and explained to the company
that if she had accepted their offer she would most likely be in violation of:
Standard I-Professionalism
Standard II-Integrity of Capital Markets
Standard III-Conflicts of Interest - ANSWER✔✔A is correct. If Robinson were to
accept Reliable Data Corp's offer to pay all her expenses to attend the company's
upcoming annual shareholder meeting she would be in violation of Standard I(B)-
Independence and Objectivity. Members and candidates must use reasonable care
and judgement to achieve and maintain independence and objectivity in their
professional activities. Members and candidates must not offer, solicit, or accept
any gift, benefit, compensation, or consideration that reasonably could be expected
to compromise their own or another's independence and objectivity.
B is incorrect. If Robinson were to accept Reliable Data Corp's offer to pay all her
expenses to attend the company's upcoming annual shareholder meeting, she
would not be in violation of Standard II-Integrity of Capital Markets.
, C is incorrect. If Robinson were to accept Reliable Data Corp's offer to pay all her
expenses to attend the company's upcoming annual shareholder meeting she would
not be in violation of Standard III-Duties to Employers.
Miranda Grafton, CFA, purchased a large block of stock at varying prices during
the trading session. The stock realized a significant gain in value before the close
of the trading day, so Grafton reviewed her purchase prices to determine what
prices should be assigned to each specific account. According to the Standards of
Practice Handbook, Grafton's least appropriate action is to allocate the execution
prices:
across the participating client accounts at the same execution price.
across the participating client accounts pro rata on the basis of account size.
on a first-in, first-out basis with consideration of bundling orders for efficiency. -
ANSWER✔✔B is correct because according to Standard III(B) best practices
include allocating pro rata on the basis of order size, not account size. All clients
participating in the block trade should receive the same execution price and be
charged the same commission.
A is incorrect because according to Standard III(B) all clients participating in the
block trade should receive the same execution price and be charged the same
commission.
C is incorrect because this is one of the recommended procedures to follow for
compliance with Standard III(B).
Kelly Amadon, CFA, an investment advisor, has two clients: Ryan Randolf, 65
years old, and Keiko Kitagawa, 45 years old. Both clients earn the same amount in
salary. Randolf, however, has a large amount of assets, while Kitagawa has few
assets outside her investment portfolio. Randolf is single and willing to invest a
portion of his assets very aggressively; Kitagawa wants to achieve a steady rate of
Questions And Answers With Verified
Solutions 100% Correct!!!
The relationship between an investment professional and her clients is
predominately based on trust, most likely because the investment professional:
sells or gives advice related to tangible products and services.
has specialized knowledge, leading her to have more power.
has access to information on which to base investment decisions. - ANSWER✔✔B
is correct. Investment professionals have access to specialized knowledge and
often have better access to information that gives them an advantage and more
power than the client. Clients expect their advisers to use this knowledge and
information to their benefit, not for the investment professional to take advantage
of them.
A is incorrect. Investment professionals sell or give advice on intangible products,
not tangible products, so trust is harder for the client to give.
C is incorrect. Investment professionals sometimes have access to more
information on which to make investment decisions, however, it is not unlimited.
In the CFA Institute Standards of Professional Conduct, Standard III-Duties to
Clients most likely includes which of the following subsections?
Performance Presentation
Knowledge of the Law
Independence and Objectivity - ANSWER✔✔A is correct. Performance
Presentation is a sub-section of Standard III-Duties to Clients. The other sub-
,sections include: Loyalty, Prudence and Care, Fair Dealing, Suitability, and
Preservation of Confidentiality.
B is incorrect. Knowledge of the Law is a sub-section of Standard I-
Professionalism.
C is incorrect. Independence and Objectivity is a sub-section of Standard I-
Professionalism.
Reliable Data Corp offered to pay all the expenses of Lindsey Robinson, CFA, an
equity analyst who covers the company, to attend the company's upcoming annual
shareholder meeting. Robinson declined their offer and explained to the company
that if she had accepted their offer she would most likely be in violation of:
Standard I-Professionalism
Standard II-Integrity of Capital Markets
Standard III-Conflicts of Interest - ANSWER✔✔A is correct. If Robinson were to
accept Reliable Data Corp's offer to pay all her expenses to attend the company's
upcoming annual shareholder meeting she would be in violation of Standard I(B)-
Independence and Objectivity. Members and candidates must use reasonable care
and judgement to achieve and maintain independence and objectivity in their
professional activities. Members and candidates must not offer, solicit, or accept
any gift, benefit, compensation, or consideration that reasonably could be expected
to compromise their own or another's independence and objectivity.
B is incorrect. If Robinson were to accept Reliable Data Corp's offer to pay all her
expenses to attend the company's upcoming annual shareholder meeting, she
would not be in violation of Standard II-Integrity of Capital Markets.
, C is incorrect. If Robinson were to accept Reliable Data Corp's offer to pay all her
expenses to attend the company's upcoming annual shareholder meeting she would
not be in violation of Standard III-Duties to Employers.
Miranda Grafton, CFA, purchased a large block of stock at varying prices during
the trading session. The stock realized a significant gain in value before the close
of the trading day, so Grafton reviewed her purchase prices to determine what
prices should be assigned to each specific account. According to the Standards of
Practice Handbook, Grafton's least appropriate action is to allocate the execution
prices:
across the participating client accounts at the same execution price.
across the participating client accounts pro rata on the basis of account size.
on a first-in, first-out basis with consideration of bundling orders for efficiency. -
ANSWER✔✔B is correct because according to Standard III(B) best practices
include allocating pro rata on the basis of order size, not account size. All clients
participating in the block trade should receive the same execution price and be
charged the same commission.
A is incorrect because according to Standard III(B) all clients participating in the
block trade should receive the same execution price and be charged the same
commission.
C is incorrect because this is one of the recommended procedures to follow for
compliance with Standard III(B).
Kelly Amadon, CFA, an investment advisor, has two clients: Ryan Randolf, 65
years old, and Keiko Kitagawa, 45 years old. Both clients earn the same amount in
salary. Randolf, however, has a large amount of assets, while Kitagawa has few
assets outside her investment portfolio. Randolf is single and willing to invest a
portion of his assets very aggressively; Kitagawa wants to achieve a steady rate of
